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Filinvest Credit Corp.

vs CA

178 SCRA 188, G.R. No. 82508
September 29, 1989
FACTS:
Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale of gravel
produced from crushed rocks and used for construction purposes. They intended to buy rock crusher from
Rizal Consolidated Corporation which carried a cash price tag of P550,000.00. They applied for financial
assistance from herein petitioner Filinvest Credit Corporation, who agreed to extend financial aid on the
certain conditions.
A contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private
respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1981,
payable as follows: P10,000.00 first 3 months, P23,000.00 next 6 months, P24,800.00 next 15 months. It
was likewise stipulated that at the end of the two-year period, the machine would be owned by the private
respondents. Thus the private respondent issued in favor of the petitioner a check for P150,550.00, as initial
rental (or guaranty deposit), and 24 postdated checks corresponding to the 24 monthly rentals. In addition, to
guarantee their compliance with the lease contract, the private respondent executed a real estate mortgage over
two parcels of land in favor of the petitioner. The rock crusher was delivered to the spouses.
However, 3 months later, the souses stopped payment when petitioner had not acted on the complaints of the
spouses about the machine. As a consequence, petitioner extrajudicially foreclosed the real estate mortgage.
The spouses filed a complaint before the RTC. The RTC rendered a decision in favor of private respondent.
The petitioner elevated the case to CA which affirmed the decision in toto. Hence, this petition.
ISSUES:
1. Whether or not the nature of the contract is one of a contract of sale.\
2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative.
HELD:
1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would
become the property of the private respondents. This form of agreement has been criticized as a lease only in
name.
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in
that form, for one reason or another, have frequently restored to the device of making contracts in the form of
leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-
called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall
thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent
must necessarily be regarded as payment of the price in installments since the due payment of the agreed
amount results, by the terms of bargain, in the transfer of title to the lessee.
2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or more
installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the
obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted
thereon. It is now settled that the said remedies are alternative and not cumulative, and therefore, the exercise
of one bars the exercise of the others. Indubitably, the device contract of lease with option to buy is at
times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up,
the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise the right
to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults
in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract
of sale, gets to keep all the installments-cum-rentals already paid.

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